Citgo To Pay $125 Million In Settlement Of Madoff Feeder Suit

Hedge fund manager and administrator Citco Group Ltd. has agreed to pay $125 million to end class action claims that it helped funnel investors’ money into Bernie Madoff’s Ponzi scheme. U.S. District Judge Victor Marrero had been told by Citco that it had reached a settlement in the case in July. Citco filed a stipulation of settlement on August 12 with the Plaintiffs’ lawyer that revealed the fund manager will pay $125 million to owners of shares or limited partnership interests in Madoff feeder funds to end the litigation as to Citco.

The Plaintiffs will proceed with the cases against the remaining defendants, PwC Canada and PwC Netherlands, which are two PricewaterhouseCoopers LLP units. The case is expected to get to trial in January. Named Plaintiffs Pasha and Julia Anwar first filed suit in New York state court in December 2008, and more than four and a half years later, Judge Marrero granted the Plaintiffs’ bid for class certification for a second time.

The certification of a class was granted in March. There was evidence presented that investors relied on PwC’s and Citco’s erroneous valuations and audit reports in choosing to invest in Fairfield Greenwich Ltd.-managed funds, including the Madoff scheme’s single-largest feeder fund. Judge Marrero certified the class after the Second Circuit vacated his certification last year. The class of about 1,000 individuals and businesses lost at least $7.5 billion to the Ponzi scheme as a result of their investments with Fairfield Greenwich.

The investors’ argument – that their relationship with PwC and Citco was close enough to establish a “duty of care” under New York law – was accepted by Judge Marrero. Fairfield Greenwich’s emails to PwC stating that “investors have been requesting the audits for the past couple months,” according to Judge Marrero, showed that PwC knew the Plaintiffs were relying on its reports. The judge pointed out that Citco’s internal-procedures manual explicitly stated that shareholders and partners will make investment decisions based on its net asset value reports.

Citco ended involvement in the case when it reached the settlement last month and if its settlement gets approval by the court, the PwC units will be the sole remaining defendants in the case. The parties involved believe it will get approval because removing Citco will simplify the remaining litigation.